Shale Gas in Europe: Broad Spectrum of Risk

It’s definitely a mixed bag when it comes to assessing the political risk for unconventional gas in Central & Eastern Europe (CEE).

In his presentation at the Unconventional Oil & Gas Summit in Warsaw, Poland, Zachary Rothstein, Analyst, Control Risks spoke about how social and political backlashes and environmental concerns were affecting the landscape that E&P companies faced in exploring for unconventional energy in CEE.

“Political and public support varies very significantly across the region,” he stated, comparing the populist response in Bulgaria (where the government awarded exploration concessions and then adopted a fracking ban within six months) to the pragmatic opportunism in Ukraine, where the government “sees shale gas as a bargaining chip in gas price negotiations with Russia.”

Mr. Rothstein noted that in Poland there was high level political support for shale gas.

He said, “Still, there are a number of uncertainties regarding how it’s going to develop. In particular, the unpredictability of the regulatory/royalty regime has been a major concern for investors. Even in Poland, where political support is most favorable, you have these kinds of risks.”

According to him, there were reasons why several CEE countries were optimistic about oil and gas development: “A dependency on Russia and the need to decrease carbon emissions generate a lot of political enthusiasm.

“Despite that, there has been an emerging anti fracking campaign,” he commented of the political risk perspective. “It has been manifested in protests outside sites, demonstrations outside of parliament, and in public opinion surveys that show that public support has been declining.”

Mr. Rothstein noted that shale had taken off in the US long before the emergence of an anti fracking campaign. He explained: “Now we’re seeing a cross fertilization of anti fracking groups in the US and Europe, which is reflected in the kinds of issues that they’re picking up on. Gasland has been translated and is on YouTube in Polish and in Bulgarian.

He noted that regulation in Europe was much more robust and that a lot of the concerns in the US were already addressed by regulation on the continent.

“A further area of risk for foreign companies includes integrity issues and the transparency of licensing. A lot of clients have come to us asking us how licenses are awarded in this part of the world and whether the public administration has the capacity to award them transparently.

“Integrity risks and corruption continue to be an area of concern for many of our clients operating in the region,” he added.

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